Just over one week ago, I wrote an extensive piece for the Observer entitled “Broker argues US economy shifting from slow growth to double dip contraction”, deliberately covering a recent presentation of Oppenheimer’s Greg Fisher and Dr Carl Ross in great detail, as they mirrored my own on the international economy.

Fisher stated that the US economy appeared to be in the process of stalling, with a “double dip” contraction increasingly likely. For the key housing market, he argued the “double dip” had already started, and an unemployment “double dip” may already have begun, as the budget crisis in the US states was forcing mass layoffs in local government. The Federal Government will ultimately be forced to bail out the states, with the November election likely to be a turning point, as newly elected Governors will have an incentive to admit how broke their states are, as occurred in Jamaica after our own election in 2007.

Ross argued that, particularly if the Republicans win in November, interest rates are going to be “lower for longer” (this is actually becoming a consensus view for nearly all the Central Banks of the developed countries), as the US government will start withdrawing fiscal stimulus. In my own terminology, the “ice” of global deflation will continue to drive down the bond yields of those developed countries not yet regarded as bad credits.

Ross argued that the prospect of prolonged easy money will drive the flow of money into bond markets. In the case of US government bonds, this is already happening, with the 10 year bond yield plummeting, on the verge of breaking past its 52-week low of 2.55per cent. In such an environment, fixed income (and gold) will continue to be the asset class of choice (despite day to day volatility) with the US ten year and long-bond likely to reach 2 and 3per cent respectively by year-end.

It is now time for investors to start paying very close attention indeed to what is happening to the global economy, as the credibility of Wall Streets rosy scenarios is deteriorating almost by the day. Until recently, conventional Wall Street wisdom was that a double dip, meaning a further period of negative growth in 2011 was possible but very unlikely, with many giving it a less than 10per cent chance. University of Michigan Professor Richard Curtin, whose index monitors US consumer confidence, to some degree reflected that conventional wisdom when he argued that a “double dip” recession next year was “possible but unlikely” in a piece of the same name dated June 18. In a private conversation in early July, at the release of the Jamaica Chamber of Commerce indices, he estimated the probability at only 25 per cent (this was itself significantly higher than his Wall Street colleagues).

He has now made what he now firmly describes as “a non – ignorable 25 per cent probability” a public projection in his last comment on US consumer confidence at the end of July , observing that the current slowdown in US consumer spending “is likely to persist well into 2011”.

Also toward the end of July, Goldman Sachs top economist Jan Hatzius released a report on the US economy entitled “second half slowdown”. Investors should understand that Goldman has been one of the cheerleaders of the so called recovery (like much of Wall Street), and that they are actually a lagging indicator of what is happening as they were in 2007 and 2008. The fact that they have moved to a more negative position suggests that the US slowdown is becoming really obvious (they can’t ignore it anymore), even to those like Goldman who are heavily invested in a bull market.

The view of Nouriel Roubini, the Stern Business School economist who most accurately foresaw the economic crisis, is that even if we technically avoid a double dip recession in the US, it may feel like one. I believe the chance is currently over 50/50, or at least twice what Professor Curtin and most of Wall Street is saying. Of course, the major Wall Street houses massively underestimated the chances of a recession in Jan 2008, when in my view it was a near certainty.

There is now an imminent danger of a US stock market collapse when Wall Street finally revises its growth projections downward. Such an event would very soon impact the typical US tourist to Jamaica, who is middle class with stock market investments in his individual retirement account (401 K), and therefore pays attention to stock market and economic news. He also has a mortgage, but house prices are still declining.

All this is not positive for the prospects for a recovery in Jamaica’s economic growth, however small e.g. half a per cent, in the second half of the year. The only upside is that it may provide the backdrop for the Governor to cut local interest rates to even lower levels, perhaps below seven per cent, as inflation risks “fire” would not be a concern in the short to medium run, either internationally or domestically.